Alliances: partner selection

Dyer, Kale and Singh (2004) surveyed 200 executives from top US companies:

• 82% of executives consider acquisitions and alliances as alternatives
• 76% of companies don’t simply compare them before picking one
• 86% of companies have not developed any specific policy to choose between contracts, alliances, acquisition

Most companies avoid contracts and alliances and display a biais towards acquisitions via:

• Emphasis on control and rival exclusion
• M&As are seen as a seductive shortcut
• Overestimation of market frictions
• Misinterpretation of previous failures (easier to detect in contracts/alliances than in acquisitions)

Knowledge question: can you define the targeted resources clearly? Resource clarity, shared understanding of the future, value of the targeted resources, no need to work closely with the partner (modular synergies).

Governance question: can you protect the value of the resources involved in the transaction? Clarity, trust and law, low risk of resource leakage, contract execution skills.

Knowledge question: how focused is the scope of collaboration? Limited span of functions and activities, simple patterns of coordination.

Governance question: are your goals compatible with your partner’s goals? Low competitive overlap, balanced resource contribution, symmetrical learning opportunities, alliance execution skills.

Three factors in alliance:

• Synergies : they are sequential, modular and reciprocal.
• Resources : hard resources are combined, soft resources are combined.
• Market conditions : the new entity faces high uncertainty, competition for resources is high.

PARTNERSHIP

1. Rewards: What is my bargaining power, in general and with respect to this P?
2. Execution: What is the level of compatibility and commitment between our two companies?
3. Strategy: What are the market power, learning, option and benefits of this P?

• Revenue impact
• Resource complementary (skill, market, technological partner brand)
• Corporate reputation: signaling value
• Learning: capabilities, know-how, option value

• Organizational / operational / cultural / human fit
• Strategic fit: alignment in business objectives and performance expectations
• Financial cost of execution (esp. coordination costs)
• Top management commitment
• Reputation for effective alliance management
• Prior experience with partner
• Presence of alliance management unit

• Number of (their) alternative partners
• Attractiveness of status quo
• Priorly negotiated deal terms
• Relative dependence on deal

• A disciplined selection process identifies multiple potential partners that increase your negotiation power
• Targeting the right partner increases the odds of a successful negotiation
• Input to potential deal terms and your negotiation strategy
• A vehicle for getting critical internal buy-in for the partnership or option chosen